Confessions Of A VC Who Raised Money During Financial Armageddon

We started to plan for our fundraising for Greycroft II, our second fund, around Christmas 2008. This was a few months after Lehman Brothers collapsed.

Our team of four partners agreed among ourselves that we wanted to raise a fund of $125 million. Because we were not yet 60% invested in Greycroft I, we knew we had plenty of lead time to complete our fund raising and commence investing in the 4th quarter of 2009 or at the latest, 1st quarter 2010.

The general partner allocation in the new fund was set in advance, so as to avoid greed or dissension which often times sets in when you get close to the goal. The management company and its structure were also set. Since everyone had been working for below norm compensation in the first fund (a $75 million fund raised entirely from high net worth investors, operating in 2 cities with 4 partners, a senior associate and 2 administrative assistants), the second fund would be an opportunity to be more competitive, especially as we planned to bring new people on board. We were a team and everyone was bought in to our long range plans including our assistants.

By late February 2009 we had put together our track record up to that point in Fund I and prepared a 20-page Powerpoint deck. We had to update the presentation 3 times during the process as we saw what was working and what wasn’t and to adjust for time passed. Most important of all, we had and have a clear strategy of what we invest in, how we invest, and our overall disciplined approach to the venture capital business. We communicated our determination to be a small fund and stay a small fund and make small investments in certain types of companies with low pre-money valuations.

We invest in a way that is designed to make every other venture capital firm our friend and our partner as we have flexibility on the size of our investment and our role in the deal. As such we virtually never do a deal without a partner whether another venture firm or a strategic investor. It’s our approach – you don’t have to mimic it, but it sets the stage for multiple compatible relationships. Moreover, we committed to our potential investors that Fund III, when it happens, will be no more than 10-15% greater in size. We intend to remain small. Our focus has to be totally on the carry.

In late February 2009, we hit the road and began talking to potential investors.